Financial Management-8

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LIST OF ATTEMPTED QUESTIONS AND ANSWERS



Multiple Choice Single Answer
Question
The technique where the interest is compounded and becomes a part of initial principal at the end of compounding period is termed as
Correct Answer
Compounding
Your Answer
Compounding

True/False
Question
A good Budget manual promotes standardization and simplification of budgetary procedures
Correct Answer
True
Your Answer
True

Multiple Choice Single Answer
Question
The Investment decisions are mainly concerned with
Correct Answer
Application of funds
Your Answer
Costing of funds

Select The Blank
Question
As per the Tandon Committee, the norms suggested for consumption of raw materials should be in ________
Correct Answer
months
Your Answer
months

Multiple Choice Multiple Answer
Question
Internal sources of cash are
Correct Answer
Depreciation , Amortization of intangible assets
Your Answer
Issue of new shares , Amortization of intangible assets

Multiple Choice Multiple Answer
Question
The collection programme of the firm consists of
Correct Answer
Maintaining the state of receivables , Dispatch of letters to customers whose due date is approaching , Telegraphic and Telephonic advice to customers around the due date
Your Answer
Maintaining the state of receivables , Dispatch of letters to customers whose due date is approaching , Maintaining record of bills payable

True/False
Question
Ratio should be computed on the basis of inter-related figures which have a cause and effect relationship
Correct Answer
True
Your Answer
True

True/False
Question
A partnership is an incorporated association of individuals.
Correct Answer
False
Your Answer
True

Match The Following
Question
Correct Answer
Your Answer
Advantage of Net present value
considers cash inflows from the project throughout its life
uses profits after depreciation and taxes and not the cash inflows for evaluating the projects
Disadvantage of Accounting rate of return
uses profits after depreciation and taxes and not the cash inflows for evaluating the projects
ignores time value of money
Disadvantage of Pay back period
ignores time value of money
can be computed even in the absence of the knowledge about the firm's cost of capital
Advantage of Discounted Pay back period
considers time value of money
considers cash inflows from the project throughout its life

Multiple Choice Multiple Answer
Question
The Proprietary concern is better than the Partnership concern on the following points
Correct Answer
Minimum Government regulations , Where the business is small
Your Answer
Minimum Government regulations , Where the business is small

True/False
Question
Undercapitalisation indicates sound financial position and efficient management of the company
Correct Answer
True
Your Answer
False

Multiple Choice Single Answer
Question
The accounting report which summarises the revenues and expenses for a specified accounting period is referred to as
Correct Answer
Profit and loss Account
Your Answer
Balance Sheet

Select The Blank
Question
________ and return always go hand in hand
Correct Answer
Risk
Your Answer
Risk

Select The Blank
Question
Cost management is the function of a ________.
Correct Answer
Treasurer
Your Answer
Finance manager

Multiple Choice Single Answer
Question
Increase in the amount in debtors results in
Correct Answer
Decrease in cash
Your Answer
Increase in cash

Select The Blank
Question
Factor can purchase the debts of the client making the immediate payment of the same, this reduces the strain on the ________ requirements of the client
Correct Answer
Working Capital
Your Answer
Working Capital

Select The Blank
Question
________ implies arithmetical relationship between two related figures
Correct Answer
Ratio
Your Answer
Ratio

True/False
Question
In funds flow statement, net decrease in working capital is shown on sources side
Correct Answer
True
Your Answer
False

Match The Following
Question
Correct Answer
Your Answer
Financial leverage
Earning before interest and tax / ( Earning before interest and tax - Interest )
( Net Profit after tax - Preference dividend ) / Shareholders funds
Earnings per share
(Profit after tax - Preference dividend) / Number of Equity shares
Earning before interest and tax / ( Earning before interest and tax - Interest )
Price earning ratio
Market Price per share / Earnings per share
( Sales - Variable cost ) / ( Earning before interest and tax - Interest )
Operating leverage
Contribution / Earnings before interest and tax
Contribution / Earnings before interest and tax

Multiple Choice Single Answer
Question
The method of subtracting present value of cash outflows from present value of cash inflows is known as
Correct Answer
Net present value
Your Answer
Pay Back period

Multiple Choice Multiple Answer
Question
Advantages of Debentures from company's point of view are
Correct Answer
The specific cost of debt capital represented by debentures is lower than the cost of preference or equity capital , Debenture financing does not result in dilution of control
Your Answer
The specific cost of debt capital represented by debentures is lower than the cost of preference or equity capital , Carry voting rights , Debenture prices are vulnerable to increase in interest rates

Multiple Choice Multiple Answer
Question
The sources of cash are
Correct Answer
Cash from operations , sale of machinery , Issue of new shares
Your Answer
Cash from operations , sale of machinery , Issue of new shares

Multiple Choice Single Answer
Question
Requirement of working capital is low is case of
Correct Answer
Infrastructure oriented projects
Your Answer
Trading organisation

Select The Blank
Question
Carriage Inward is normally debited to ________
Correct Answer
Manufacturing Account
Your Answer
Profit and Loss Account

Multiple Choice Single Answer
Question
Receipt of loans/borrowings appear in the cash budget under the head
Correct Answer
Non-operating cash inflow
Your Answer
Operating Cash Inflow

Multiple Choice Multiple Answer
Question
The cost of managing inventory includes
Correct Answer
Ordering cost , Carrying cost
Your Answer
Maintenance cost , Ordering cost , Carrying cost

Select The Blank
Question
In ABC analysis B class consist of ________.
Correct Answer
relatively less important items
Your Answer
that quantity which is fixed in such a way that the total variable cost of managing the inventory can be minimised

True/False
Question
In narrow sense funds means only cash resources of the business
Correct Answer
True
Your Answer
True

True/False
Question
Current ratio and Acid test ratio are categorised under liquidity group
Correct Answer
True
Your Answer
True

Multiple Choice Single Answer
Question
According to the Irrelevance approach of dividend policy, the value of the company
Correct Answer
remains unaffected by the dividend policy of the company
Your Answer
will increase if dividend payout is on the higher side

Multiple Choice Single Answer
Question
The effect of Purchase of machinery by issue of debentures on the funds flow is that there will be
Correct Answer
No effect on the funds flow
Your Answer
Increase in application of funds

Select The Blank
Question
As per the II method suggested by the Tandon committee, the borrower should finance ________ of current assets out of long term funds and the banks provide the remaining finance
Correct Answer
0.25
Your Answer
0.25

Multiple Choice Multiple Answer
Question
Fund based lending of banks include
Correct Answer
Overdraft , Bills Purchased
Your Answer
Overdraft

Select The Blank
Question
Proprietory ratio indicates the relationship between the owner's fund and ________
Correct Answer
Total assets
Your Answer
External liabilities

True/False
Question
Inventory is the intermediate stage between purchase of raw materials and consumption of raw materials
Correct Answer
True
Your Answer
True

Multiple Choice Multiple Answer
Question
The recommendations of the Tandon committee included
Correct Answer
the norms for inventory and accounts receivables for as many as 15 industries excluding heavy engineering industry , that the amount of bank credit should not be decided by the capacity of the borrower to offer security to the banks but it should be decided in such a way to supplement the borrower's resources in carrying a reasonable level of current assets in relation to his production requirement
Your Answer
the norms for inventory and accounts receivables for as many as 15 industries excluding heavy engineering industry , all cash credit accounts with banks should be bifurcated in two categories

Multiple Choice Multiple Answer
Question
If Profit maximization is accepted as the only goal of finance function, it is criticised on the following grounds
Correct Answer
Ignores risk factor , Does not consider social obligation , Ignores quality aspect of benefits associated with a financial course of action
Your Answer
Does take into consideration time value of money , Ignores risk factor , Does not consider social obligation

True/False
Question
Private limited company can commence business immediately on incorporation
Correct Answer
True
Your Answer
False

True/False
Question
If the customer fails to pay the amount due from him the legal action should be initiated against the customer after the limitation period is over
Correct Answer
False
Your Answer
True

Multiple Choice Single Answer
Question
The cost which is attached with the source of capital apparently is termed as
Correct Answer
Explicit cost
Your Answer
Implicit cost

Select The Blank
Question
When a company issues bonus shares ________ of the company get reduced
Correct Answer
Reserves
Your Answer
Sharecapital

Select The Blank
Question
Inflow of funds may not necessarily result in ________
Correct Answer
Inflow of cash
Your Answer
stability of funds

Multiple Choice Multiple Answer
Question
The Economic Order Quantity model is based on the assumption of
Correct Answer
Placing and receiving orders is without any delay , Ordering costs and carrying costs associated with the orders are variable in nature and they behave exactly opposite to each other , The demand for the material concerned is uniform throughout the year
Your Answer
Placing and receiving orders is without any delay , The demand for the material concerned is uniform throughout the year

Multiple Choice Multiple Answer
Question
Advantages of Internal rate of return is
Correct Answer
It considers time value of money , It considers cash inflows from the project throughout its life , It can be computed even in the absence of the knowledge about the firm's cost of capital
Your Answer
It considers cash inflows from the project throughout its life , It can be computed even in the absence of the knowledge about the firm's cost of capital , It is easy to use

Multiple Choice Multiple Answer
Question
Shortcomings of Debentures from company's point of view
Correct Answer
The debenture interest and capital repayment are obligatory payments , Debenture financing enhances the financial risk associated with the firm
Your Answer
The debenture interest and capital repayment are obligatory payments , Debenture financing enhances the financial risk associated with the firm , They have lowest priority in the event of liquidation , Controlling the affairs of the company

Multiple Choice Single Answer
Question
The highest form of maintaining liquidity of cash is
Correct Answer
Cash balance in the current account
Your Answer
Trading in capital market

Multiple Choice Single Answer
Question
Overcapitalisation is
Correct Answer
Existence of excess capital as compared to the level of activity and requirements
Your Answer
Existence of excess capital as compared to the level of activity and requirements

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Labels: Financial Management


Friday, January 25, 2008
Financial Management - 1
Multiple Choice Multiple Answer
Question The causes of undercapitalisation are
Correct Answer Future earnings may be underestimated , Company following too conservative policy for paying the dividends
Your Answer Company following too conservative policy for paying the dividends , Future earnings may be underestimated

Select The Blank
Question Subscription list of a public issue of shares shall be kept open for minimum ________ working days
Correct Answer 3
Your Answer 3

Select The Blank
Question ________ in liabilities involves outflow of funds
Correct Answer Decrease
Your Answer Decrease

Multiple Choice Single Answer
Question The Investment decisions are mainly concerned with
Correct Answer Application of funds
Your Answer Application of funds

Multiple Choice Multiple Answer
Question The following techniques can be used to delay cash payments
Correct Answer Payments can be made from a bank which is distant from the bank of the company to which payment is to be made , Attempts should be made by the company to get the maximum credit for the goods or service supplied , Avoid early payments
Your Answer Payments can be made from a bank which is distant from the bank of the company to which payment is to be made , Attempts should be made by the company to get the maximum credit for the goods or service supplied , Avoid early payments

Select The Blank
Question Till the sales revenue reaches the break even point, the company ________
Correct Answer incurs the losses
Your Answer incurs the losses

Select The Blank
Question Preparation of Financial plan at the time of company promotion is ________ duty of the finance executive
Correct Answer Non-recurring
Your Answer Non-recurring

Multiple Choice Single Answer
Question The ratio which indicates the extent to which the Owners' funds are sunk in different kinds of assets is termed as
Correct Answer Proprietory ratio
Your Answer Proprietory ratio

Select The Blank
Question ________ is the summary of cash book or Receipts and Payments Statement
Correct Answer Cash flow statement
Your Answer Cash flow statement

True/False
Question Retained earnings or ploughed back profits is one of the best source of raising long term funds for the company
Correct Answer True
Your Answer True

True/False
Question When a company issues bonus shares, reserves of the company get reduced and share capital of the company increases
Correct Answer True
Your Answer True

Multiple Choice Multiple Answer
Question Top management who can accept or reject capital expenditure proposals may be in the form of
Correct Answer Board of Directors , Executive committee , Management committee
Your Answer Board of Directors , Executive committee , Management committee

Multiple Choice Multiple Answer
Question The approaches to compute the cost of equity shares are
Correct Answer Dividend / Price Approach , Realised Yield Approach , Earnings / Price Approach
Your Answer Dividend / Price Approach , Realised Yield Approach , Earnings / Price Approach

True/False
Question Introduction of a heavy amount of debt capital in the capital structure will not only reduce the valuation of the firm but will also increase the cost of capital
Correct Answer True
Your Answer True

True/False
Question Before the company can pay the dividend on Equity shares, it is bound to pay the dividend on Preference shares
Correct Answer True
Your Answer True

Match The Following
Question Correct Answer Your Answer

Term loan represents a source of debt finance which is generally repayable in more than one year but less than ten years represents a source of debt finance which is generally repayable in more than one year but less than ten years

Lessee Not able to claim depreciation on asset Not able to claim depreciation on asset

Hirer Claims the depreciation on the asset Claims the depreciation on the asset

Retained earnings Residue left behind from earnings available to equity shareholders after the payment of annual dividend Residue left behind from earnings available to equity shareholders after the payment of annual dividend


Multiple Choice Multiple Answer
Question Uses of financial leverage are
Correct Answer It acts as a guideline in setting maximum limit upto which the company should use the debt capital , It gives an indication regarding the extent to which Earning per share may be affected due to every change in Earning before Interest and tax
Your Answer It acts as a guideline in setting maximum limit upto which the company should use the debt capital , It gives an indication regarding the extent to which Earning per share may be affected due to every change in Earning before Interest and tax , It provides useful guidelines for determining the optimal capital structure

Multiple Choice Multiple Answer
Question The methods which consider the risk in capital budgeting decision are
Correct Answer Informal method , Risk adjusted discounting rate , Certainty-Equivalent approach
Your Answer Informal method , Risk adjusted discounting rate , Certainty-Equivalent approach

Select The Blank
Question Profit after taxes can be distributed among the owners of the company by way of ________
Correct Answer dividend
Your Answer dividend

Multiple Choice Single Answer
Question Interest Coverage ratio is calculated as
Correct Answer Profit before Interest and taxes / Interest charges
Your Answer Profit before Interest and taxes / Interest charges

True/False
Question Internal rate of return indicates that the discounting rate at which net present value is zero
Correct Answer True
Your Answer True

Select The Blank
Question In ABC analysis C class consist of ________.
Correct Answer a very large number of items which are less important
Your Answer a very large number of items which are less important

True/False
Question Semi-variable cost is the cost which varies in direct proportion to the sales revenue
Correct Answer False
Your Answer False

True/False
Question One of the most common methods to monitor the receivables on macro basis is to calculate age-wise analysis of receivables
Correct Answer False
Your Answer False

Multiple Choice Single Answer
Question Tangible net worth means
Correct Answer share capital plus free reserves
Your Answer Current assets less Current liabilities

Multiple Choice Multiple Answer
Question Assuming the current ratio is 2, in which cases would the current ratio decline
Correct Answer Purchase of fixed Assets , Borrow Money on an Interest bearing promissory note
Your Answer Purchase of fixed Assets , Borrow Money on an Interest bearing promissory note

True/False
Question Solvency ratios consists of current ratio and Price earnings ratio
Correct Answer False
Your Answer False

Multiple Choice Single Answer
Question Revenue reserves represents
Correct Answer Accumulated retained earnings from the profits of normal business operations
Your Answer Accumulated retained earnings from the profits of normal business operations

Select The Blank
Question For the selection of the period for which capital expenditure budget should be prepared , ________ a period may not be useful
Correct Answer Too long
Your Answer Too long

Multiple Choice Multiple Answer
Question The shares of the company can be bought back out of the following amounts
Correct Answer Free Reserves of the company , Share Premium Account of the company , Proceeds of issue of any shares or other specified securities
Your Answer Free Reserves of the company , Share Premium Account of the company

Multiple Choice Single Answer
Question From the following data, work out the Economic order quantity : Annual Demand : 5000 units, Ordering cost Rs. 60 per order, Price per unit Rs. 100, Inventory carrying cost is 15% on average inventory
Correct Answer 200 units
Your Answer 200 units

Multiple Choice Single Answer
Question Increase in average credit period to maintain sales in view of falling demand can be indicated by
Correct Answer Debtors turnover ratio
Your Answer Debtors turnover ratio

Match The Following
Question Correct Answer Your Answer

Increase in current liabilities decreases working capital increases working capital

Increase in liabilities inflow of funds inflow of funds

Decrease in liabilities outflow of funds outflow of funds

Increase in current assets increases working capital cash flow analysis


Select The Blank
Question The situation of watered capital may arise due to ________
Correct Answer Company pays higher price to the vendors of the assets transferred
Your Answer Company pays higher price to the vendors of the assets transferred

True/False
Question Economic Order Quantity model is a very useful model of determining the order quantity
Correct Answer True
Your Answer True

Multiple Choice Multiple Answer
Question The advantages of operating lease is
Correct Answer In an operating lease arrangement the equipment risk is transferred to the lessor , It minimizes investment in equipment , Reduces expenditure on maintenance
Your Answer In an operating lease arrangement the equipment risk is transferred to the lessor , It minimizes investment in equipment , Reduces expenditure on maintenance

Select The Blank
Question ________ in assets involves inflow of funds
Correct Answer Decrease
Your Answer Decrease

Multiple Choice Multiple Answer
Question The functions of a Finance Controller are :
Correct Answer Budgeting , Record Keeping , Annual Reporting
Your Answer Budgeting , Record Keeping , Annual Reporting

Multiple Choice Single Answer
Question The symptom of low capacity utilisation will be shown by
Correct Answer Fixed Assets Turnover ratio
Your Answer Fixed Assets Turnover ratio

Multiple Choice Single Answer
Question If a company decides to invite public deposits
Correct Answer It should publish an advertising in leading newspaper
Your Answer It should publish an advertising in leading newspaper

Multiple Choice Multiple Answer
Question The techniques of Analysis and Interpretation of financial statements are
Correct Answer Ratio Analysis , Cash flow Analysis
Your Answer Ratio Analysis , Cash flow Analysis

Multiple Choice Multiple Answer
Question Advantages of ABC Analysis are
Correct Answer A close and strict control is facilitated on the most important items , Helps in maintaining a high inventory turnover ratio , Optimum utilisation of the available funds can be assured
Your Answer It enables to locate slow and non-moving items , A close and strict control is facilitated on the most important items , Optimum utilisation of the available funds can be assured

Select The Blank
Question The amount of profit earned after recovering the interest on long term sources of capital is referred to as ________
Correct Answer Profit before taxes
Your Answer Profit before taxes

Multiple Choice Single Answer
Question Mr. A invested Rs. 10,000 in fixed deposit carrying interest @10% p.a. compounded annually. Calculate the value of investment after two years
Correct Answer Rs. 12,100
Your Answer Rs. 12,100

Multiple Choice Single Answer
Question Increase in the amount of bills payable results in
Correct Answer Increase in cash
Your Answer Decrease in cash

Multiple Choice Single Answer
Question The assets held by a business which can be converted in the form of cash or used during the course of normal operations is termed as
Correct Answer Current assets
Your Answer Current assets

True/False
Question Inadequate provision for depreciation may be the cause of overcapitalisation
Correct Answer True
Your Answer True